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  • CFPB takes action against Maryland debt collectors

    Federal Issues

    On August 16, the CFPB entered into a preliminary settlement with a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”) for allegedly violating the FCRA, FDCPA, and the CFPA, resolving a case filed in the U.S. District Court for the District of Maryland. As previously covered by InfoBytes, the complaint alleges that the defendants violated the FCRA and its implementing Regulation V by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnish information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The Bureau separately alleges that the violations of the FCRA and Regulation V constitute violations of the CFPA. Additionally, the Bureau alleges that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts. Under the terms of the proposed stipulated final judgment and order, the defendants are required to, among other things: (i) establish, modify, update, and implement policies and procedures on the accuracy of information furnished to consumer reporting agencies; (ii) establish internal controls to identify activities that may compromise the accuracy or integrity of information; (iii) establish an identity theft report review program; and (iv) retain an independent consultant to review the defendant’s furnishing of consumer information and debt collection activities in addition to provide recommendations. The proposed order also imposes a civil money penalty of $850,000.

    Federal Issues FDCPA Enforcement CFPB Act CFPB Credit Reporting Agency Debt Collection FCRA Credit Furnishing Consumer Reporting Agency

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  • District Court grants summary judgment for defendant in FDCPA vicarious liability case

    Courts

    On July 30, the U.S. District Court for the Northern District of Alabama granted a motion for summary judgment in favor of a debt collector (defendant) with respect to a plaintiff’s FDCPA allegations. The plaintiff alleged that the defendant, among other things, violated the FDCPA by engaging in abusive, deceptive, and unfair debt collection practices when the defendant allegedly filed a false proof of service in a collection action, which allowed the defendant to obtain a default judgment and garnish the plaintiff’s wages. The defendant, through a law firm, allegedly purchased a debt that the plaintiff had maintained. Subsequently, a collection lawsuit against the plaintiff was filed and a process server delivered the summons and complaint to the plaintiff. The plaintiff filed suit against the defendant, alleging the defendant violated the FDCPA by falsely claiming that it served the summons and complaint. After finding that the defendant itself did not falsify the service return form or have knowledge that a falsified service return form was filed, the court examined if the defendant is vicariously liable for the alleged violations undertaken by the collection law firm or the process server. According to the opinion, “a plaintiff may press an FDCPA claim pursuant to a theory of vicarious liability only if the pertinent parties both constitute “debt collectors” and they enjoy an agency relationship,” however, “the evidence fails to permit a reasonable determination that either may expose [the defendant] to vicarious liability.”

    As previously covered by InfoBytes, in June, the U.S. District Court for the District of Oregon partially granted a plaintiff’s motion for summary judgment, finding that a debt buyer who puts accounts with a debt collector can be held vicariously liable for the actions of the debt collector, since the debt buyer “bear[s] the responsibility of monitoring the activities of those it hires to collect debts on its behalf.” However, in the U.S. District Court for the Northern District of Alabama case, the court found that that any alleged issues regarding summons and complaints in an underlying collection case do not qualify as the responsibility of the defendant.

    Courts FDCPA Debt Collection Vicarious Liability

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  • CFPB confirms final debt collection rules still set to take effect November 30

    Federal Issues

    On July 30, the CFPB officially announced that the agency’s two final debt collection rules, which implement the FDCPA, will take effect as scheduled on November 30. Earlier in April, the Bureau proposed delaying the effective date by 60 days to provide affected parties additional time to comply due to the ongoing Covid-19 pandemic (covered by InfoBytes here). However, the Bureau determined that an extension is unnecessary and will publish a formal notice in the Federal Register withdrawing the April notice of proposed rulemaking. According to the Bureau, “public comments generally did not support an extension. Most industry commenters stated that they would be prepared to comply with the final rules by November 30, 2021.” The Bureau pointed out that while “consumer advocate commenters generally supported extending the effective date, they did not focus on whether additional time is needed to implement the rules.” Rather, the “alternative basis for an extension that many commenters urged, a reconsideration of the rules, was beyond the scope of the NPRM and could raise concerns under the Administrative Procedure Act,” the Bureau stated, adding that the decision does not preclude the Bureau from reconsidering the debt collection rules at a later date.

    As previously covered by InfoBytes, the first debt collection rule, issued in October 2020, addressed debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The second debt collection rule, issued in December 2020, clarified the information debt collectors must provide to consumers at the outset of collection communications and provided a model validation notice containing such information (covered by InfoBytes here).

    Federal Issues CFPB Debt Collection Agency Rule-Making & Guidance FDCPA

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  • Massachusetts Division of Banks issues guidance to debt collectors and student loan servicers

    Recently, the Massachusetts Division of Banks published guidance related to the conduct of debt collectors, student loan servicers, and third-party loan servicers. 209 CMR 18.00 defines unfair or deceptive acts or practices for entities servicing loans or collecting debts within the commonwealth, and provides licensing, registration, and supervision procedures. Those provisions of the regulation that govern fair debt collection and third party loan servicing practices apply both to licensed entities, and entities exempt from licensure. Additionally, the regulation specifies that licensed debt collectors are not required to register as third party loan servicers but must still comply with all relevant state and federal laws and regulations that govern third party loan servicers when acting in that capacity. Student loan servicers engaged in third party loan servicing activities or debt collection activities within the scope of student loan servicing activities described within Massachusetts’ law are also required to comply with all applicable state and federal laws and regulations governing third party loan servicers and debt collectors when acting in such capacity. Additionally, 209 CMR 18.00 outlines, among other things, (i) licensing application requirements; (ii) licensing standards; (iii) registration procedures and standards; (iv) notice, reporting, and recordkeeping requirements; (v) collection practices and consumer communication restrictions; (vi) prohibitions related to harassment or abuse, false or misleading representations, and unfair, deceptive, or unconscionable practices; (vii) debt validation requirements; (viii) mortgage loan servicing practices; (ix) student loan servicing practices; and (x) confidentiality provisions. The regulation took effect July 1.

    Licensing State Issues State Regulators Massachusetts Debt Collection Student Lending Student Loan Servicer Third-Party Compliance

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  • DFPI to start accepting debt collector licensing applications on September 1

    On July 12, the Nationwide Multistate Licensing System & Registry (NMLS) published an announcement reminding debt collectors that all persons must apply for a license through the California Department of Financial Protection and Innovation (DFPI) by December 31, 2021. As previously covered by InfoBytes, last September, California enacted the “Debt Collection Licensing Act” (the Act), which requires a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed and provides for the regulation and oversight of debt collectors by DFPI. Under the Act, debt collection licenses will be required starting January 1, 2022; however, debt collectors who submit applications before January 1, 2022 will be allowed to operate while their applications are pending. However, a debt collector that submits an application after December 31 must wait for DFPI to issue a license before it can operate in the state. All required application materials must be submitted through NMLS, and NMLS reminded applicants that fingerprints must also be submitted to the California Department of Justice. The application will be available on NMLS beginning September 1.

    Find continuing InfoBytes coverage on DFPI’s debt collector licensing requirements here.

    Licensing State Issues State Regulators DFPI Debt Collection NMLS

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  • 3rd Circuit overturns FDCPA ruling in plaintiff’s favor

    Courts

    On July 6, the U.S. Court of Appeals for the Third Circuit overturned a district court’s decision, holding that a debt collector that sent an envelope with a quick reference (QR) code that when scanned, revealed an Internal Reference Number (IRN) with the first 10 characters of the plaintiff’s street address violated the FDCPA’s prohibition in 15 U.S.C. § 1692f(8) on “[u]sing any language or symbol, other than the debt collector’s address, on any envelope.” The district court, relying on the 3rd Circuit’s 2019 decision in DiNaples v. MRS BPO, dismissed the case, holding the plaintiff lacked standing under the FDCPA because the barcode on the envelope did not reveal enough protected information to rise to the level of a concrete injury, since numerous individuals could have an identical IRN.

    The 3rd Circuit reversed and remanded, explaining that the plaintiff had standing to bring a claim because the envelope’s QR code made protected information available to the public. The court rejected the defendant’s arguments that the envelope did not violate the FDCPA because it did not reveal the account number, the plaintiff did not know how to use the bar code to unlock the private information, and that there was no material risk of harm. The appellate court explained that “[a]ccount numbers are but one type of protected information” and that the plaintiff “did not need to know how to use IRNs to access accounts” nor “did he need to show an increased risk of harm.”

    Courts Appellate Third Circuit FDCPA Debt Collection

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  • Groups ask Education Dept. to stop preempting states on student lending

    Federal Issues

    On July 7, the Conference of State Bank Supervisors (CSBS) and the North American Collection Agency Regulatory Association (NACARA) sent a letter to Department of Education Secretary Miguel Cardona urging the Department to rescind recent policies “claiming preemption or otherwise impairing state regulation of federal student loan servicers and debt collectors.” The letter acknowledges steps taken by the Department to facilitate coordination and collaboration with state financial regulators but notes that additional action is required to accomplish a shared mission of protecting student borrowers. Among other things, the letter discusses several Department actions taken over the years, including the Department’s 2018 position that state regulation of servicers of loans made under the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan Program is preempted by federal law. The letter urges the Department “to rescind the 2018 preemption notice and formally recognize that state oversight and regulation is fully applicable to federal student loan servicers and debt collectors, entirely appropriate, and not in conflict with the purpose of the [Higher Education Act].” The letter also discusses revised guidance issued in May concerning the handling of outside requests for Department records and data. As previously covered by InfoBytes, the revised guidance supersedes the Department’s 2017 guidance and creates a “streamlined and expedited process” for reviewing information requests made by any state or federal authority for information pertaining to companies engaged in student loan lending or collections. However, CSBS and NACARA emphasize that the Department should “recognize that state financial regulators are independently authorized to access records in possession of the federal student loan servicers and debt collectors subject to state regulation.” Additionally, the letter requests, among other things, that the Department take additional action deemed necessary to “fully return” to a policy of collaboration for protecting student loan borrowers, pointing out that timing is important as most federal student loan repayments resume in October.

    Federal Issues State Issues CSBS State Regulators Department of Education Student Lending Debt Collection Preemption

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  • District Court’s order targets debt settlement firm’s abusive acts

    Courts

    On July 2, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against an online debt-settlement company to resolve CFPB allegations concerning violations of the TSR and the CFPA’s prohibition on abusive acts or practices. As previously covered by InfoBytes, the Bureau filed a complaint against the company in April claiming it took “unreasonable advantage of consumers’ reasonable reliance that [the company] would protect their interests in negotiating their debts” by failing to disclose its relationship to certain creditors and steering consumers into high-cost loans offered by affiliated lenders. The Bureau also alleged that the company regularly prioritized creditors with which it had undisclosed relationships when settling consumers’ debts. Under the terms of the order, the company—who neither admits nor denies the allegations except as specified—is required to pay approximately $646,769 in redress and a $750,000 civil money penalty. The company is also (i) prohibited from settling consumers’ debts owed to any affiliated company with which it shares direct or indirect ownership; (ii) required to disclose to consumers any affiliation with any provider of the specific loans; and (iii) required to notify consumers with currently enrolled debts that it will no longer seek to settle those debts. Additionally, the company is required to comply with the TSR when marketing or selling any debt relief products or services, including by providing accurate disbursement amounts, not charging settlement-performance fees, clearly disclosing estimated costs, and not misrepresenting any material facts.

    Courts CFPB Enforcement Abusive UDAAP Consumer Finance Settlement Debt Collection Debt Settlement Telemarketing Sales Rule CFPA

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  • District Court grants CFPB’s motion to strike affirmative defenses in FCRA, FDCPA action

    Courts

    On June 30, the U.S. District Court for the District of Maryland issued a memorandum opinion granting the CFPB’s motion to strike four out of five affirmative defenses presented by defendants in an action alleging FCRA and FDCPA violations. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants (a debt collection entity, its subsidiaries, and their owner) for allegedly violating the FCRA, FDCPA, and the CFPA. The alleged violations include, among other things, the defendants’ failure to ensure accurate reporting to consumer-reporting agencies, failure to conduct reasonable investigations and review relevant information when handling indirect disputes, and failure to conduct investigations into the accuracy of information after receiving identity theft reports before furnishing such information to consumer-reporting agencies. The Bureau separately alleged that the FCRA violations constitute violations of the CFPA, and that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts.

    After the court denied the defendants’ motion to dismiss on the basis that the CFPB was unconstitutional and therefore lacked standing, the defendants filed an amended affirmative defense asserting the following: (i) the alleged FDCPA violation was a bona fide error; (ii) the Bureau was “barred from seeking equitable relief by the doctrine of unclean hands”; (iii) the Bureau’s leadership structure was unconstitutional under Article II at the time the complaint was filed, thus the actions taken at the time were invalid; (iv) the Bureau structure is unconstitutional under Article I and therefore the Bureau lacked standing because “it is not accountable to Congress through the appropriations process”; and (v) the statute of limitations on the alleged violations had expired. The Bureau asked the court to strike all but the statute of limitations defense. Concerning the bona fide error defense, the defendants contended the alleged violations were not intentional and resulted from a bona fide error notwithstanding the maintenance of “detail[ed] policies and procedures for furnishing accurate information to the consumer reporting agencies,” but the court ruled this defense insufficient because the defendants failed to identify “specific errors [and] specific policies that were maintained to avoid such errors” and failed to explain their procedures. With respect to the unclean hands defense, the court ruled to strike the defense because it found that the defendants had not “alleged ‘egregious’ conduct or shown how the prejudice from that conduct ‘rose to a constitutional level’” when claiming the Bureau engaged in “duplicitous conduct” by allegedly disregarding its own NORA process or by serving multiple civil investigative demands. Finally, the court further decided to strike the two constitutional defenses because it found that allowing those defenses to proceed “could ‘unnecessarily consume the Court’s resources.’” The court granted the defendants 14 days to file an amended affirmative defense curing the identified defects.

    Courts CFPB Enforcement FCRA FDCPA Consumer Reporting Agency Credit Report Debt Collection CFPA Bona Fide Error

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  • DFPI issues NPRM on debt collector licensing requirements

    On June 23, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking (NPRM) to incorporate changes to its debt collection license requirements and application. As previously covered by InfoBytes, in 2020, California enacted the “Debt Collection Licensing Act” (the Act), which requires a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed and provides for the regulation and oversight of debt collectors by DFPI. In April, DFPI issued a NPRM to adopt new requirements for debt collectors seeking to obtain a license to operate in the state (covered by InfoBytes here). 

    Among other things, the most recent NPRM seeks to:

    • Revise the definition of “applicant” to clarify that an affiliate who is not applying for a license is not an applicant.
    • Include language requirements for documents filed with DFPI.
    • Clarify the requirements and appointment process of DFPI as the agent for service of process.
    • Eliminate the requirement that an applicant must file a copy of the California Department of Justice Request for Live Scan Service form for each individual with the Nationwide Multistate Licensing System & Registry (NMLS) instead of DFPI.
    • Remove requirements regarding the submission of the management chart being submitted to DFPI, the extent to which an applicant intends to utilize third parties to perform debt collection functions, and the filing with NMLS of policies and procedures.
    • Refine requirements for maintaining media records.
    • Refine the process of filing a change in control amendment for new officers, directors, partners, and other control people.
    • Establish new branch office registration procedures.
    • Eliminate requiring the submission of the total dollar amount of debt collected from consumers to determine whether a higher surety bond is required.
    • Remove provisions that would permit DFPI to set a higher surety bond amount.

    DFPI’s notice specifies that comments on the most recent proposed modifications are due July 12.

    Licensing State Legislation State Regulators DFPI Debt Collection NMLS

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